Indian economy: Time's running out!
Equitymaster.com
A famous analogy relates economic growth with the game of cricket. It states that economic, or GDP growth is like chasing a target score in a cricket match. When you are chasing a target, be it the cricket score in 50 overs or GDP growth in 5 years, the performance in every year will affect the target (to be achieved) in the remaining period. If you perform poorly in the early part of the innings, the pressure is relatively higher n the later part. Something similar happens with the Indian GDP growth, as targeted in the five-year plans.
The tenth five-year plan (FY02-FY07) for the Indian economy has envisaged an annual GDP growth rate of 8% per annum. If we take this into account and assume that the size of the Indian economy was US$ 100 bn at the beginning of 2002, consistent 8% growth rate per year will get us to a GDP of around US$ 147 bn at the end of 2007, or 47% growth over a period of 5 years.
Now, if one were to take into account the 4.0%, 8.7% and 6.8% growth rates achieved in FY03, FY04 and FY05 respectively, the total growth has been around 20.7% combined in the first three years of the tenth plan. This leaves us with another 27% growth to be achieved in the next two years (FY06 and FY07). This means a CAGR of almost 11% in the remaining two years, which seems an uphill task, or shall we say, rather impossible.
However, even if we wish to achieve this high level of growth (or something nearby, say 8% to 9%) over the next two years, the Indian economy needs significant acceleration. More simply, we need to move faster on the path to economic and political reforms. Also, the Indian governments of the past, especially those that held offices post the 1991 liberalisation, have failed to focus on fundamental issues like education, healthcare, poverty and corruption. If we are to move to the new growth trajectory, these fundamental issues have to be addressed seriously. Ultimately, they are the pillars that would enable us to achieve our objective of sustainable long-term growth. Policies that are aimed to please one section of the economy will never work in our favor.
